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Exploratory campaign is Queiroz Galvão’s key driver in the short term

SÃO PAULO - "Queiroz Galvão Exploração e Produção (QGEP3) may announce important short-term drivers in the near future", highlighted
Auro Rozenbaum, Bruno Varella and Gabriel Levinho, market analysts at Bradesco Corretora. According to them, most of these
drivers would be associated with its exploratory campaign.

Hence, the team maintains its outperform recommendation, with a target price of R$21.60 for the companys stock, for a 52.33%
upside on its closing price on Tuesday, February 13th.

The exploratory campaign is important: "The main reference point should be exploratory block BM-S-12s results, which should
be announced in mid-March. This block represents 41% of the companys reserve portfolio and is one of the largest in terms
of resources", the analysts pointed out. Moreover, the resumption of drilling at block BM-J-2 is also an important factor
for the companys stock as the block represents 24% of the companys total reserve portfolio. Drilling in this block is currently
suspended due to environmental issues.

Issues at block BM-S-8 too should be resolved soon - by mid-2012 - where the company will drill the Carcará well, which should
be less than 7,000 meters deep. Exploration on block BS-4, on the other hand, still requires approval from Brazils National
Petroleum Agency (ANP).

Acquisitions and production also draw attention

The exploratory campaign is not the only promising factor for the company. "Production at Manati returned to full capacity
after maintenance downtime in December 2011", the analysts stated. The company should go through brief maintenance downtimes
at a cost of US$2 to US$3 million.

Another reference point may be farm-ins (acquisition of new wells in the secondary market) and acquisition of new assets.
The company already acquired 10% of BM-S-8 from Shell for US$175 million. It may also engage in mergers and acquisitions,
acquiring, for example, Anadarkos Brazilian assets. The company says it is analyzing acquisition opportunities but did not
give any additional information.

Auctions, certification and capex

The company is also studying ANPs 11th auction and analyzing the equatorial margin, consisting of five basins in northeast
Brazil - Foz do Amazonas, Pará-Maranhão, Barreirinhas, Ceará and Potiguar. It is considering potential partnerships to dilute
risk, considering that the region is geologically complex.

The Bradesco team also stresses that the company may obtain new reserve certifications in 2012, which generally changes the
markets mood. The analysts recall that the company will also have to address its capex, since it will require US$160 million.
It may probably have to raise funds, preferably through debt, around the second half of 2013.

Source: InfoMoney

Updated in 2014-01-08T16:39:35All the dates of this page are presented in official timezone of Brasilia - Brazil.